Financial Friday #134: Tips to Salvage your 2022 Financial Life!


7 Ways You Can Still Make 2022 a Financial Success
 
2022 is winding down and if you are a little shy of your financial goals and looking for some quick fixes, we have a few suggestions for you.
 
1. If you don’t have a TFSA or RRSP, take it off your wish list and get one (or both) before the end of the year. The process is free, can easily be done online, and there is no minimum deposit amount required with many institutions. RRSPs allow you to defer paying tax until you withdraw the funds — ideally when you are retired, and your tax rate is low. The deadline to contribute to your RRSP and take the deduction on your 2022 income taxes is March 1, 2023. A TFSA contribution is not tax deductible, but you don't pay any tax when you withdraw that money. Furthermore, any income you generate by investing your contributions can be withdrawn without any tax. You can open a TFSA and add money to it at any time.
 
2. Gain control of your monthly spend and stop wondering where your money goes every month. As proven by a number of bankrupt celebrities and athletes, regardless of how much money you have coming in, not tracking where and how much is going out is a recipe for disaster.
 
3. Automate your savings. Making your money invisible by setting up automatic transfers every payday to a savings account (and then invest it!) will remove the guesswork and excuses from saving money. Money left in your daily chequing has a way of disappearing!
 
4. If you are carrying a balance on your credit card, it's time to map out a realistic payment plan for an all-out attack on that debt. Figures just out say the average credit card balance in Canada is $2121. Paying the minimum on that amount will require 187 months to eliminate the balance and cost you almost $2400 in interest. Paying the minimum plus $50/month will cut it down to 27 months and $518 in interest charges!
 
4A. Invest any excess cash. A "high-interest" savings account is a huge misnomer, even with the recent increase in interest rates. You might get over 3% in a new account for a limited period, but chances are you are currently earning under 2%. The same goes for any cash sitting in your RRSP, TFSA, or your child's RESP. Financial markets are down this year and have been volatile, but stock have always recovered over the long term.
 
5. Investigate mortgage options and how recent interest rates hikes will affect your payment when you renew. The average for a 5-year fixed mortgage in 2018 was around 4.5%, so you are likely looking at 1% to 2% more when you renew in 2023. That will add between $200 to $400 monthly to a $400K mortgage. If you had a variable rate mortgage you are already feeling the pain, and if you have a fixed-payment variable rate mortgage you could be in for a shock!
 
6. Rethink how much you spend on car(s). They can easily be bought and sold and there is almost always a cheaper option. Attachment to a car is usually much more emotional than rational, so it's less about giving up a real need and more about feeling good behind the wheel. If you are comparing car alternatives, make sure you factor in gas, insurance, parking, snow tires, oil changes, and any repairs not under warranty in addition to the monthly payment.
 
7. Top up the kid’s RESP as best you can before Dec. 31. Deposits up to the $2500 annual limit will receive a 20% grant from the federal government. If you miss a year, you are allowed to overcontribute to some extent in future years, but playing catch-up is hard — just dump in whatever you can before year-end!
 
2022 has been a financial disaster for many Canadians with high inflation, high interest rates, falling home prices in many markets, and stagnant wages. There is no easy financial fix for 2023 and it could be another tough year, but taking advantage of any of the above tips should help to weather another storm.
 
Resources:
 
Holster your HELOC as interest rates rise
Home equity lines of credit are still a good option if you need to pay off high-interest debt, but as HELOC rates have jumped from around 3% to 6.5%, using one to extend your household income for cars, trips, furniture, etc. is fast becoming a very expensive habit.
 
The worst kind of financial advice
Should you take your money advice from a personal finance guru or an economist? This article offers some great perspective on managing your financial life based on your circumstances, not what some book or academic claims is "the way" to financial success.

How is inflation calculated?
We all know prices are going up and the "official" inflation rate is around 7%, but where does that number come from and why does inflation hit some people a lot harder than others — try the tool to calculate your personal inflation rate.
 
Tax brackets and marginal tax rates in Canada
More income means more taxes, but not all of your income is taxed at the same rate. Find out how your income fits into Canada's tax brackets and how a little more income may lead to a lot more taxes.
 
7 Tips to make better financial decisions
If you have finances on your list of "things to do better in 2023" this one has a few good ideas to get you started.